Unit 1: Basic Economic Concepts

1.     Scarcity: Insufficient productive resources to fulfill all human wants and needs. Fundamental economic problem that all societies.

2.     Economics: The branch of knowledge concerned with the production, consumption and transfer of wealth.

3.     1st Pillar of Economic wisdom: Nothing in or material world can come from nowhere, nor can it be free; everything in or economic life has a source, a destruction and a cost that must be paid by someone.

4.      Five key economic assumptions:

A.   Society’s wants are unlimited, but all resources are limited (Scarcity)

B.    Due to scarcity, choices must be made. Every choice has a cost (trade off).

C.    Everyone’s goal is to make choices that maximize their satisfaction. Everyone acts in self-interest.

D.   Everyone makes decisions by comparing the marginal costs and marginal benefits of every choice.     

E.    Real life situations can be explained and analyzed through simplified models and graphs

   5. Marginal- associated with a specific change in the quantity used of a good and service

·        Marginal Cost: Change in the opportunity cost that curves when the quantity produced is incremented by one units that is the cost of produced one more unit of a good.

·        Marginal Benefit: The additional satisfaction or utility that a person reflects from consuming an additional unit of a goods or service.

6. Ceteris paribus- “all other things remaining constant” used to rule out the possibility of other factors changing

    7. Opportunity cost- A benefit profit of value of something that must be given up acquiring or achieve something else.

    8. Macroeconomics- the part of economics concerned with large scale or general economic factors like interest rate  

Microeconomics- economics concerned with single factors and individual decisions

   9. Utility- usefulness

 10. Allocate- Analysis of how scarce resources are distributed among producers and scarce goods and resources are apportioned among consumers.  

11. Price- Amount of money that must be paid to acquire a certain good.

Cost- The value attached to an item by an individual.

12. Investment- an asset or item purchased with hopes of higher gain in the future.

13. Goods: Materials that satisfy human wants or needs.

Capital goods: Items used in the creation of goods.

Consumer good: Finished product

14. Services- Non-Material exchange of value

15. Explicit Cost- Direct payment

Implicit cost- Non-direct payment

 

·        Positive economic (Based on Fact)- Claims that attempt to describe the world as is

o    Very descriptive in nature.

o    Ex: Minimum wage laws causes unemployment

·        Normative economics (Based on Opinion)- Claims that attempt to prescribe how the world should

be.

o    Ex: Government should raise minimum wage.

·        Wants: desires of citizens

·        Needs: Basic requirements for survival

·        Shortage (Price increase): Temporary. Quantity demanded is greater than quantity supplied.

·        Surplus (Price drop): Quantity is greater than demand

Factors of Production:

1.      Land- Natural resources

2.      Labor- Work exerted

3.      Capital- Financial wealth

            Human capital: Knowledgeand skills that a worker gains through education and experience.

            Physical capital: Human made objects used to create other objects.

    4. Entrepreneurship- Innovative. Risk Taker.